Effective Tax Rate

The effective tax rate (also called the average tax rate) is your total income tax divided by your gross income, expressed as a percentage. It gives you a more realistic picture of your overall tax burden than looking at your marginal rate alone.

In New Zealand's progressive tax system, the effective rate is always lower than the marginal rate because your lower-bracket income is taxed at lower rates. For example, on a $70,000 salary the effective income tax rate is approximately 18.9%, even though the marginal rate is 30%. On a $100,000 salary the effective rate is about 22.9%, despite a 33% marginal rate.

When comparing tax across countries or evaluating a pay rise, the effective rate is more useful than the marginal rate. Keep in mind that the effective rate typically refers to income tax only — your total deduction rate is higher once you include ACC levy, KiwiSaver, and any student loan repayments.